Powershop questions power giants’ “loyalty penalty” model

Ed McManus is on the campaign trail. The electricity industry, he says, is entering a period of change defined by a “rapid transfer of power towards the consumer,” the Powershop CEO tells EcoGeneration.

And that’s on top of an expensive national-scale transition to vastly different and much-easier-on-the-lungs technologies, such as wind – where Powershop’s parent company Meridian is invested – and solar.

Is he ready for this transfer of power? Apparently so. In its last report, McManus says Powershop sold more green power to its customers than AGL sold to its consumer base, despite the fact that AGL is a “vastly bigger” business, he says.

“Our customers tend to buy quite a bit of green power, which is really good because they’re supporting renewable energy in Australia.”

Powershop, based in Melbourne, has close to 80,000 retail customers and is owned by Wellington-based Meridian Energy, which owns and operates two wind farms in Australia: at Mount Mercer, near Ballarat in Victoria, and Mount Millar in South Australia. The retail business sells electricity mainly to residential customers but also small business and some large commercial and industrial customers in NSW and Victoria.

“We sell green power not only from our own wind farms but also from third-party renewable energy sources,” McManus says, such as the Hepburn Community Wind Farm near Daylesford, Victoria.

McManus isn’t exactly sure how Powershop is attracting green-minded consumers. As far as he knows his customer base is pretty much reflective of the Australian population, with no weighting towards the young or inner-city dwellers.

“I think a broad section of society is interested in having more information on their power, how much they’re using and where it’s coming from,” he says.

The new transparency emerging in relationships between some energy retailers and their clients is akin to the Uber business model, he says, where the customer of the ride-sharing service knows where a car is and can view the driver’s rating. “I’m old enough to remember what taxis used to be like,” he says. “You’d ring for a taxi and you’d be just sitting there worried whether it’s going to turn up.”

These days, energy users can see how much power they’re using, how much it will cost and decide where that power will come from – renewables or non-renewables.

“If you think about the core of what Uber delivers, we are doing something similar in electricity,” he says. “We’re building a business model that may have been a bit niche a few years ago but we don’t think it’s niche anymore.”

As more Australians tune in to their energy-use habits more of us will feel impelled to change them. “We know what we have to do,” he says, citing the use of air-conditioners as an example. “Every degree below 23 degrees you set your air-conditioner, it increases the cost by 10%. It is pretty easy to make small changes in life which … really add up to a lot of money.”

To change their behaviour, consumers need information and visibility of what the change will deliver in terms of financial benefit. “Put those two things together and it’s pretty straight-forward to make small changes.”

Operations in parent company Meridian’s home market New Zealand – where it operates seven wind farms – show it is possible to run an electricity system that delivers “reliable and affordable” power with a far higher penetration of renewables than is the case in Australia.

McManus says there are no immediate plans to purchase more wind farms in Australia just yet, although he’s not ruling anything out. And what about utilities-scale solar? The signs are good, with costs falling “dramatically”, he says, “and we are keeping a very close eye on that, because it would be quite complementary to wind.”

At the Australian Energy Week conference in June McManus was part of a panel where the conversation turned to the Hazelwood brown-coal power station in Victoria’s Latrobe Valley, famous for being the most-polluting plant of its kind in the OECD.

Given the oversupply of electricity in Victoria, closing Hazelwood would be a very good thing for the environment and a meaningful beginning for the transition away from coal, he says, before emphasising any transition would have to involve the reskilling of the local community. “Really, the debate is about how quickly that will happen and who will bear the cost.”

The electricity industry is not popular in the eyes of most consumers, he reckons. Prices have increased, we all know that, but a historical constant has been the “pretty abysmal” levels of customer service. Door-knocking and telemarketing by the powerful incumbents are blunt instruments in the battle for market share and consumers are tired of it. “Many customers don’t realise what is going on and end up paying too much,” he says. “We’re taking quite a different approach.”

The industry as it operates today often involves a “loyalty penalty”, he says, where customers who have been with a retailer the longest are paying the most. “[The way lots of other industries operate] you get a benefit by being a loyal customer. Electricity is the total opposite of that.”

In its May 2014 submission to the government’s Expert Panel on its review of the renewable energy target, Powershop spoke pretty plainly about incumbent energy giants AGL, Origin and Energy Australia: “The Big Three are more like the car industry,” it wrote. “They are the local players clinging to an out-dated, expensive model of service and supply, refusing to adjust to world’s best practice and relying on barriers to entry and industry structure to shut out new and more efficient models.”

Plenty is happening in the power game. If everyone could win, that would be great. But that never happens.

Ed McManus will present as part of All-Energy Australia’s opening plenary panel in Melbourne in October and speak on day one about ways to meet changing consumer demands. More info at all-energy.com.au